If that enrages you, at least you're not alone. This story is that it has managed to piss virtually everyone off in one way or another. Even Larry Summers!

Mr. Summers also appeared on CBS’s “Face the Nation,” remaining consistent in his core message about the bonuses: “It is outrageous. The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous.”

"We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system."

Huh. That's some pretty weak ass outrage. Oh and that whole "every legal step" thing? Well it turns out he isn't telling the truth. Shocking, I know. Glenn Greenwald:

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.

The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so -- they haven't exactly proven themselves to be paragons of business ethics -- but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

Legal strategies aside, just as a business matter, one of the first steps taken by every company in severe distress is go to its creditors, explain that it cannot make the required payments, and force re-negotiations of the terms. That’s as basic as it gets. To see how that works, just look at what GM and other automakers did with their union contracts – what they were forced by the Government to do as a condition for their bailout. Obviously, if a company goes into bankruptcy, then contracts to pay executive bonuses are immediately nullified, but the threat of bankruptcy or serious financial distress is, for obvious reasons, very compelling leverage to force substantial concessions. And the idea that, in this economy, AIG executives (of all people) will be able simply to leave and go seek employment elsewhere unless they receive their "retention bonuses" (even assuming that’s an undesirable outcome) is nothing short of ludicrous.

Since I wrote the first part of the post, Barack addressed the issue with a sharper tone than Summers, Romer and other Administration members used on Sunday:

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the executives.

“All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses,” said Mr. Obama, who called the issue one of “fundamental values.”

Strong words, and let's hope he means it. And I say hope because last month when reports of CEO bonuses for bailed out banks were brought to light, we got this:

President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

It turns out that Wall Street wasn't the only opponent of more stringent limits on bonuses for bailed-out executives -- Treasury Secretary Tim Geithner and White House economic adviser Larry Summers were leading the charge to keep CEO pay caps out of the stimulus.

The outrage behind the AIG scandal might be so overwhelming that it forces Giethner and Summers into actions that they clearly don't want to take. Then again, that's what I've thought/hoped would happen about 10 differenttimesover the pastthree months, so I'm not exactly holding my breath.

4 comments:

I believe the bonus payout excesses at AIG are just the tip of the iceberg of what is happening with the other Wall Street bailouts including Bank of America. Working productive Americans are bailing out the same crooks that destroyed our economy along with 45% of the wealth in the world. Now the American taxpayers and our posterity will be forced to live a far lower standard of living with reduced prosperity and opportunities due to the accumulated national debt to fund the bailouts and once again we will pay the price.

Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. I believe Washington plans to monetize the debt in future years while they tax and destroy our remaining wealth by depreciating the dollar.

To stop this wealth attack, the Campaign to Cancel the Washington National Debt By 12/21/2012 Constitutional Amendment is beginning now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts

I'm loving these auto comments based on a word or two mentioned in the post.

The first comment I don't mind because it's not a true cut and past, although I do think a balanced budget amendment is insane, and the relationship to what I wrote is fairly tangential.

The one that links to a post that's bashing the stimulus as "porkulus" ... not so much. I'm pretty sure they didn't read anything I said. Not to mention the "FALLOUT GROWS!?!?!?!" Drudge style headline.

JN's posts have gotten most of these before, so it's nice to feel included.